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With Ethics, It's Think Locally and Globally

3/30/2009 --

Executives highlight importance of firm ethics in the global market.

ANN ARBOR, Mich.—When doing business around the world, rules aren't always black and white. What's considered bad form in one country may be perfectly acceptable in others.

So what's a company with operations in several countries to do? Executives speaking at a recent event sponsored by the Tauber Institute for Global Operations at Ross agreed on one central point. A single, corporate ethics policy, to be followed by every employee around the globe, should be part of a firm's culture.

Too many companies have gotten into trouble playing the game by different rules in different countries. And corporate ethics are under the microscope now in light of the meltdown in the financial industry.

"Regardless of what country we're in, the same rules hold," said Laurie Altman, general manager of the home environment markets department at 3M Co. "It really does hold us to a higher standard."

Some companies have used a corporate ethics policy to distinguish themselves in a crowded field. Infosys Technologies Ltd. was founded in India at a time when that country's rules for corporate governance lacked muscle. But Infosys had foreign investors and customers. In fact, most of its customers are outside of India.

So the company had to make sure it played by its customers' rules, said Sanjay Jalona, vice president and U.S. head of manufacturing for Infosys.

"It was very important for us to write clear, easy-to-understand rules," he said. That meant starting at the top and making sure the ethical culture caught on in human resources, product safety, and operations.

"'When in Rome do as the Romans do' needs to be removed," he said.

Lockheed ran into trouble in the 1970s when it was revealed that it paid bribes in some countries to obtain business. It turned out that many other companies were doing the same thing, though Lockheed received most of the attention, in part because its bribes led to the imprisonment of a Japanese prime minister. A Senate probe into such dealings by U.S. firms led to the Foreign Corrupt Practices Act.

S.K. Gupta, vice president of operations for Lockheed Martin Space Systems Co., said the company is now like "a born-again Christian" when it comes to ethics. In fact, the company for a long time didn't do foreign sales, which he said may have been "overboard." But initially they couldn't figure out how to operate in some countries and comply with U.S. law.

Ethics training also has evolved, Gupta said. Lockheed Martin now has formal training, hotlines, and ethics officers at all locations. That wasn't true in the 1970s.

Still, not everything is black and white. There can be situations a company's ethics guidelines don't address. In those cases, common sense should rule. If taking an action would cause you to lose sleep, it's probably not a good idea, said Dave Hoffman, MBA '03, a plant manager for Alcoa Inc.'s transportation products and a former Tauber fellow.

"I want to be able to sleep at night," he said.

3M's Altman said to think about your actions becoming public knowledge.

"If you'd be embarrassed to see it in the newspaper, it's probably something you don't want to do," she said.

But it isn't always easy to adhere to an ethics policy, both for the company and an individual. Altman said 3M has forgone some nice business and let go of some talented people because of its ethics policy.

"We have a zero-tolerance kind of approach," she said. That's because in the long run, unethical behavior can not only lead to bad publicity, but also "flash-in-the-pan" sales that aren't sustainable.

"Unethical behavior and poor practices in this area aren't consistent with increasing shareholder value," she said. "If you were a WorldCom shareholder or an Enron shareholder you were destroyed by unethical behavior."

Hoffman said that doing the right thing can sometimes be costly to an individual. It could put you into conflict with a manager who is not concerned about ethics -- or it could cost you a bonus if you don't meet metrics.

"But how do you want people to remember you? As an unethical person or as somebody who may have lost an opportunity but did the right thing," he said.

The tough part for companies today is that they can be held responsible in the public eye for the behavior of their suppliers. Jalona said it's critical to set the ground rules early within the supply chain. You might pay a higher price initially by following a strict guideline, but it will pay off in the long run.

One student asked whether these global ethics policies are forcing U.S. values on other countries. Altman said that's not the case.

"We don't look at it as changing the culture of a country," she said. "We're just choosing who we're going to do business with."

—Terry Kosdrosky



For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu